A billion reasons never to buy IBM services

The situation is more serious than I initially thought when I wrote this article. IBM has repeatedly savaged governments around the world for sums up and over $1 billion dollars for systems which don't work and have to simply be discarded.

Winning megaprojects with low initial bids and then turning a $20 million project into a billion dollar con of the client appears to be an artform at IBM. Governments all over the world have suffered, tax payers have paid for senior IBM bonuses. Ordinary citizens have gone six months or more without their paycheques.

This behaviour appears to be IBM policy and not an accident. This very grave situation cries out for a deep investigative long form feature. Together the governments of Canada and Australia and Pennsylvania (just the ones I've found so far) likely have a case of deliberately malicious business practices.

Potential Savings on Payroll

The idea was to save money by eliminating jobs. Canada has about 260,000 public servants. Over 1200 people were working on payroll (accountants, bookkeepers and managers mainly with some IT guys thrown in to make it work). This is about half of one percent on payroll. Payroll is about one third the cost of accounting in our company. I'm unable to bring our accounting costs much below 3% of turnover on a sub-million dollar turnover despite strong efforts and automated software like Freshbooks.

I'm using headcount as a symbol of dollar figures for the Canadian government as in a service business like government or a software/IT company salary makes up over 70% of costs. It's not exact, but it provides pretty good reference numbers. Projecting these ratios onto Canada's federal government this would mean it's about twice as efficient as we've been able to become as a small business paying attention (we'd be at 1%). This is a ludicrously high on this kind of economy of scale. So the idea to reduce the head count was a good one. The target was 500 staff instead of 1200.

The mistake which was made was to try to stuff all the very diverse payment systems into a single system. It would have made more sense to categorise the type of payment systems and put like together with like. There would be a master reporting system on top of all the modules to deliver combined reports. The reporting system would be relatively easy to write if the ten or fifteen payment systems were well and simply made and storing data in an accessible way. You'd start by categorising the kinds of payroll, choosing one category, building one good payment system and then clone it out to the others.

IBM instead sold the Canadian government someone else's software (Oracle's Peoplesoft) on a sweetheart contract which did not require delivery of a working solution. Then IBM failed to successfully implement while taking payment all the way along.

A History of Public Contract Fraud

Like a military contractor in the United States who is paying kickbacks (campaign contributions above board, foreign bank accounts below board) to the congressmen and women and senators who vote on their programs, IBM gets paid more for their failure.

The Australian state of Queensland scrapped a similar project after an initial contract went off the rails and ended up costing the government around A$1 billion ($772 million) to fix. A public inquiry mostly blamed government officials, but determined IBM shouldn’t have been chosen for the job.

It shouldn't be this difficult for governments to resolve failed contracts. There is no reason for private enterprise to profit from failed public projects or inadequate estimates.

In cases like this in the past, the Canadian Government would just be able to tell IBM to deliver the goods as promised or IBM would be banned from doing business in Canada - effectively frozen. Under NAFTA and similar trade pacts, governments have lost all leverage and these sweetheart deals continue to be pushed through.

Why should the Canadian taxpayer foot the bills for corrupt contracts with devious suppliers? The answer is we should not. Companies should know that when they contract to provide public services they will be held accountable.

Some more history of IBM at home and abroad

IBM is a hollow shell of what it once was. IBM treated its own workers horribly, when in 1993 they initially off-shored what was the world's most capable software and engineering workforce. One of IBM's major destinations after blowing up their US workforce was Bratislava. Some of IBM's business has moved on from Bratislava now as the environment is not sufficiently low cost any more. From insiders here, I had the chance to learn how IBM's service business really works.

An IBM team in Bratislava is an account manager who is an a group of ten with an account director above them. I.e. there are only two people with whom you would have contact. Slovaks are very talented at mid-level service jobs: responsible and polite if not particularly fast-moving. The general level of foreign language learning is high as as in addition to reasonable natural talent, Slovaks are forced to communicate with the outside world in any other language except their own. So far, so good.

The tech credentials of these software "experts" were pretty low. Language skills was the bigger issue along with basic computer literacy (ability to send emails and manage a CRM). An HR recruiter who worked for IBM and I had a running joke about what it took to get hired at IBM Slovakia. It was just three yeses to the following questions.

"Can you say your name in English?"

"Can you sit at a desk politely?"

"Can you turn on a computer?"

Yet if these people or their friends were the only ones who had contact with your data, no issues at all. Slovaks, particularly in the service industry, are astonishingly honest.1

Who really implements software at IBM

The technical work was not kept within Slovakia at all. It was sent out to boiler rooms in India with extremely low skilled specialists and very high turnover. Your little service job might have to be done three or four times before it passed quality control and your "team leader" reported back to you. The teams were always rotating and there was no continuity on the work on any given project. If I were an IBM customer, I'd be very worried about my data transferred between so many jurisdictions and experts. It only takes one weak in the chain for your private business data to leak into the wrong hands.

In exchange, companies were paying premium development rates - hundreds of dollars an hour. IBM were effectively selling you $4/hour developers at premium prices. A company could hire software customisation engineers on hourly remuneration with ten times the soft skills and five times the hard skills for one third the hourly rate IBM charges.

Now Canada is paying for IBM's irresponsibility as an employer, a supplier and a corporate citizen.

IBM vs Local Developers or Local Experts

Canada would have done far better to hire Canadian Mike McDerment to build their payroll system from scratch. Mike has built two accounting systems which work more or less flawlessly: Freshbooks One (what we use) and Freshbooks Two (what Freshbooks are selling now). Freshbooks practices accountability. Once when Freshbooks servers went down for about eight hours, Mike gave everyone affected (about half their customers) a free month of service. I thought that was crazy over-compensation (and that's from someone who refunded $6000 to a single client for a project which didn't go according to plan).

My only recommendation to someone thinking of buying the IBM brand. Just don't. IBM doesn't produce what they are selling, offer low quality services at high prices and seek to sign customers up to dishonest contracts. In addition, IBM treats its employees very poorly (as contractors where possible), has hollowed out its home economies (North America). As coup de grace, IBM has stolen nearly a billion dollars from both Canada and Australia on failed payroll projects.

If this is how IBM treats its staff and governments, why would IBM treat your small business any differently?

Historically Slovakia gets lumped with Eastern Europe in popular perception - Slovakia is nothing like Romania, the Ukraine, Albania or even Poland in turning out petty criminals or promiscuous online fraudsters. Not to forget Western Europe, France has a far more unhealthy work culture and fraud at work and as a way of living is far more acceptable than in Slovakia. Germany and Austria tend to value probity far more highly than the Mediterranean countries. Hundreds of years of late Roman Empire corruption left an undying footprint. ↩︎

Alec has been helping businesses succeed online since 2000. Alec is an SEM expert with a background in advertising, as a former Head of Television for Grey Moscow and Senior Television Producer for Bates, Saatchi and Saatchi Russia.

Reader Interactions

Comments

I’ve heard stories about this software ruining people’s lives, because they weren’t getting paid for their work. Some people had to take loans and max out their credit cards to make ends meet, because their company had software issues (with IBM software)!

This is an interesting narrative. However it cannot be the only one. Let us explore some alternatives and side notes.

Who was responsible for picking IBM?
Are they still working for the CA gov?
Have they passed the hot potato to someone else?
How were their technical skills and soft skills evaluated?
Did they receive any donations for the contract?
Where are the safety clauses in the contract?
Is IBM the only benefactor of this contract?
Any political implications?

Remember that Gov. point person also bears a lot of the responsibility for shopping for IT services in a magazine or trough their business network.

If IBM has been so ineffective at delivering services there would be more cases like this and it would ultimately hurt their bottom line. If this was wide spread practice across their business units. Maybe their business as a whole is insulated by the other better performing parts of it’s corporation.

It seems to me that these “Governments” should investigate anyone who touched these contracts.

To the widespread corruption present in Eastern Europe. It does exist. However this article goes to show that corruption is present at a larger scale in some of the “most” developed nations on earth.

The IBM of old had both brilliant and horrid software offerings. Both were marketed with the same assurance that IBM stood behind its software.

I remember when a Buffalo bank installed JES3 in the ’70s and the entire mainframe system went down. The bank was shut down. Most fortuitously all of Buffalo was shut down by a snow storm for several days; so nobody noticed that the bank was shut down.

IBM flew in engineers and provided them snowmobiles to get to the bank and got it fixed before the customers would notice.

IBM has success over hundreds of projects every year and all the major breakthroughs including blockchain, quantum computing, watson health, cognitive computing and thr list goes on and on. one or two failures and these people go crazy!!! thr whole story starts with a clear negative vibe. Get a life man !!!

They are now trying to screw me out of $350. All according to terms that are listed nowhere on their website, terms which I never agreed to.

The two biggest players in cloud services right now are Amazon AWS & Google Cloud. Both allow you to provision a server and bill you hourly only while the server is running. IBM appears at face value to offer the very same service.

The actual provisioning page quotes you an estimated cost per hour, with a footnote that says the actual cost is based on “actual usage.” I reasonably take this to mean that the charges are variable, and related to actual usage. Nothing indicates otherwise.

Well, a short time later I receive a bill for $350.

They are claiming the terms for a virtual public instances are a fixed cost, billed hourly, and completely unrelated to actual usage. I went through every peice of information on their website objectively to see whether I missed something and went through their 20 page Cloud Services Agreement with a fine tooth comb. Those terms are mentioned nowhere.

Soon afterwards, I tested out Google Cloud, and they provide $300 free credit with no restrictions on provisioning, you can use it towards an instance with 8 vCPU’s & 52 GB of RAM. I’ve only used $15 of that credit after a couple of weeks. (I am not setting up a production enviroment.)

Based upoin my experience I completely agree with what you are saying. If not crooks, they are completely incompetent. Not what I expected from such a well known company.

It would be insane to not use the biggest two providers, AWS or Microsoft’s Azure, for cloud services. IBM, just rips off big banks or governments, since they don’t care. Google cloud, on the other hand, is not very stable, and doesn’t provide as many services as AWS or Azure.

Our own experience is that AWS is ridiculously expensive for businesses which actually need on an ongoing basis the hosting they are renting. Here’s a case study about how we saved a publisher $3000/month (of about $4000) by moving her business off of AWS (mainly EC2 and S3).

Cloud services make sense if:

You are making a pile of money and have very high margins but no access to competent server admins.

Your needs for hosting vary vastly from day to day, i.e. you have high spikes.

Even in the latter case, I’d suggest putting your core hosting onto some kind of dedicated server or VPS. I can’t speak directly to the pricing and/or competence of Azure as we have not worked with Azure. From what I know MS’s offer is similar to AWS.

What is really cost-efficient right now are VPS from Linode and DigitalOcean. We rent dozens of them in service from tiny two core API servers to 20 core behemoths with 80 GB of memory in clusters. Thanks to the built-in infrastructure of Linode and DigitalOcean we don’t have to worry about hardware failure or having technicians in data centres. Linode Managed is an amazing service which means you have 24/7 coverage for emergencies for just $100/month per server.

Linode and DigitalOcean’s built-in backup storage offer (at extra cost) reduces worry still further. Most massive failures will result in automated restore (of course you should never rely on a host as the exclusive provider of backups, we do still maintain at least weekly offsite backups).

I’m mystified at why people prefer to pay more for more complex and less reliable hosting with this miracle word “cloud” associated. I believe the word “networked” once had the same effect of turning water into wine.

This discussion goes a bit off topic – the subject of this post is IBM’s systematic pillage of government coffers for enterprise software with massive cost overruns (10x or 20x original budget) which even then doesn’t work.

I’ve lived and worked in most of these places. Life in foreign countries can be very different. Of course no general characteristic necessarily applies to any given individual. Still I’m very glad to have to run a business in Slovakia though and not in France. Even though in cultural terms, personally I’d prefer to go home in the evening to Bordeaux. Making a profit without breaking the law is much harder in France.

I’ve worked on IBM teams as a consultant. They have some very smart, talented people. They also have some poor managers and some salespeople who promise too much. They have advanced products and also second rate/past their prime products. There is great infrastructure but also slow, painful bureaucracy.

So if you are a customer you need to go beyond the brand name, be smart about choosing products and services, agree on a sensible contract, and actively and wisely manage the engagement to ensure good delivery. The history of IT megaprojects is littered with mega failures.

The situation is a lot more serious than I initially thought when I started this piece a couple of a. IBM has repeatedly savaged governments around the world for sums up and over $1 billion dollars for systems which don’t work and have to simply be discarded. Winning megaprojects with low initial bids and then turning a $20 million project into a billion dollar con of the client appears to be an artform at IBM. Governments all over the world have suffered, tax payers have paid for senior IBM bonuses. Ordinary citizens have gone six months or more without their paycheques. The behaviour outlined below appears to be IBM policy and not an accident.

This slightly flippant article is not an adequate response. This very grave situation cries out for a deep investigative long form feature. The governments of Canada and Australia and Pennsylvania (at least) probably have a case of deliberate entrapment and malicious practices.

More than a story it seems a rant by someone who is out to salvage ibm. Seems like a personal vendetta. None of the above pointers are validated. Unfortunately internet today works this way only. Anyone can post anything with absolutely no credibility.
There are questions abt CA govt frauds as well but with no answers so i dont c any logic in this one aided story

Sukant, the story above contains many links to existing cases around the world. What’s personal about this story is that these are our taxpayer dollars. IBM are openly stealing from Canadian, Australian and American taxpayers. We are the ones footing the bill for IBM’s crafty method of lowballing a project, failing to deliver, expanding the scope and finally threatening the bureaucrats involved with public shaming and to walk away from the project in exchange for a non-responsibility signature. Each case follows the same pattern.

This has happened in Canada, Australia and Pennsylvania as far as I know. According to Luka, there is a similar case in Slovenia. IBM knew that eventually the world would catch up to them. Most of the senior IBMers involved have already collected their multi-million dollar bonuses and some have probably even moved on from IBM.

This is a case of the private sector robbing the public sector. It’s time for a full time investigative journalist to go out and find out who inside IBM built this system of public fraud and who profited. Sadly there aren’t many full time investigative journalists left at all and even fewer whose publishers are not indirectly on the IBM payroll (via advertising).

I remember years ago applying for a graduate position in the uk with IBM global services. The recruitment day was an eye opener, there were no IT graduates, they were recruiting graduates from law, fine arts and History to work as developers. It was crazy and I refused to work for them in a permanent position. Later I worked as a consultant on the CLS project, it was supposed to be for a year and after 5 years they were still going. The problem is that they have Project managers with no idea of the SDLC, they fill in their project plans and look busy, but they don’t check your performance as a developer and have no idea about the end domain or the technology you are working on. Finally in relation to outsourcing “you pay peanuts ….” in 20 years I have not seen a successful outsource to India, each project has necessitated massive amounts of integration effort from home developers which in turn contributes to the cost overrun on projects. IBMs attitude of KLOCS is medieval and deluded and the public sector will only truly save money by using Local SME’s that have a stake in the success of the project. A case why globalization sucks ….

Thanks for an insider perspective Mark. I heartily concur about Local SME’s who want to work for their own government and would treat the engagement as an honour. There’s really nothing in running 260,000 paycheques a month which requires super computers or particularly efficient languages. I’ve been running this project over in my head and I really can’t see why the payroll part wouldn’t work as a PHP script with hooks for the variations in the different departments, allowing the coding to be done and maintained in a simple and modular way. It boggles my mind that someone somehow managed to turn this into a billion dollar failure.

The Indians are getting better. There are now local entrepreneurs who are able to copy Western designs for software and get their local teams to create exact copies and then add more features and sell it for between one quarter and half the price of the original. As the Western original refuses to add features and if anything increases their price in the face of success (software should experience economy of scale, instead a dominant company gets bought out by VC’s determined to pillage everyone else’s businesses to make up for the ridiculous acquisition premium they paid for the original), this model works surprisingly well.

Case Study: Any company using Zendesk should take a close look at Freshdesk. We use Teamwork Desk now as we use Teamwork Projects for project management (after we outgrew Basecamp) but even as an independent help desk system, we’d choose Teamwork Desk over anything else we’ve looked at or tried. Teamwork Desk (Irish and reasonably well run by the owners, no VC money there) still manages to be cheaper than FreshDesk (Indian) and Zendesk (originally Danish and affordable, IPO’s in 2014). Equivalent near top tier plans are $20/month per agent (Teamwork), $49/month per agent (Freshdesk), $99/$199/month per agent (Zendesk).

In favour of Zendesk, they appear to have finally smartened up to how they were giving up all new users with the starting plan at $49/month. However, the Zendesk $5/month plan is next to useless, no business rules at all and even the $19/month plan doesn’t seem to include any reporting.

There’s a reasonably decent email app made in India, which even wins design awards. I won’t mention its name as the current app is also spyware (it requires keeping your email on their server) and is no longer really an app at all (you can only rent it). Even when the Indians manage to do something decent in the software domain, they usually manage to mess it up later.

Alec Kinnear thanks for the detailed write up. i am an indian and i appreciate the honesty with which you have described the India operations. It is absolutely true.

IBM is a consulting company and it’s manager are procurement guys whose daily maneuvers are long pointless conference calls with vendors who provide bodies and blabbering about compliance. There is general lethargy, fiefdom and nice kickbacks in contracts which are paid via-family outings, gifts, hiring relatives etc.

The leads walk around with certain swagger while Accenture, Wipro eats their next business. Performance reviews are all stage managed and a sham.

The only time everyone gets the tremors, is when some one from IBM US is going to visit the office in India and there would be a revenue review. Else it is all “chalta hai” !

Thanks Logic for the on the boots account of what’s going on inside that building. It’s very difficult to keep a large company on track to serve customers and clients and not its managers. Unfortunately, the United States corporate leaders don’t even seem to be trying. Not a wonder the decadence communicates itself out to the branch offices.